The Prepared Mind: June 8, 2015

"Chance favors the prepared mind." -- Louis Pasteur

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

“Risk comes from not knowing what you`re doing.” Warren Buffett

Reports which were released last week showed job and wage gains. These gains signaled a strengthening economy and a growing GDP. Despite strengthening economic data, the major trading indexes, with the exception of the Russell 2000, traded lower. Good economic news means interest rates will increase sooner rather than later. The general consensus is that interest rates will be raised in September.

 

Here is an overview of the market behavior last week:

Index 5-Jun Weekly Change % Weekly 2015 YTD Volatility of Index
Dow Jones Industrials (DJIA) 17793.34 (217.24) -1.21% -0.17% 14.66% (VXD)
S&P 500 (SPX) 2092.83 (14.56) -0.69% 1.65% 14.21% (VIX)
NASDAQ 100 (NDX) 4477.19 (38.27) -0.85% 5.61% 15.77% (VXN)
Russell 2000 (RUT) 1261.01 16.27 1.31% 4.67% 16.51% (RVX)
S&P 100 (OEX) 919.9 (6.21) -0.67% 1.27% 16.55% (VXO)
CBOE Volatility Index (VIX) 14.21 0.37 2.67% NA

Data Source: OptionVue7

 

It was a quiet week for major indexes and a quiet weak for the VIX. June Options and Futures on the VIX expire a week from Wednesday – June 17. The last trading day will be Tuesday June 16. The cash VIX and the June VIX future prices converge as we approach expiration. Russell Rhoads, senior analyst at the CBOE, reported two major VIX trades on Friday. At “about 10:00 am Chicago time there was a buyer of 10,000 VIX Sep 20 Calls at 1.68 who also sold 10,000 VIX Sep 30 Calls at 0.65 for a net cost of 1.03.   This trade went off when VIX was around 14.82. A few hours later and about 45 minutes before the market closed on Friday there was a seller of 10,000 VIX Sep 15 Puts at 0.85.” The September VIX future (VXU5) closed on Friday at 17.025

 

Here is an overview of last week for the VIX and related products:

Indexes Ticker 5-Jun 29-May Change % Change
CBOE Volatility Index VIX 14.21 13.84 0.37 2.67%
VIX June Future VXM5 14.725 14.625 0.10 0.68%
VIX July Future VXN5 15.975 15.825 0.15 0.95%
VIX August Future VXQ5 16.625 16.425 0.20 1.22%
CBOE Short-term Volatility Index VXST 13.7 13.67 0.03 0.22%
CBOE 3 Month Volatility Index VXV 15.96 15.38 0.58 3.77%
CBOE Mid-term Volatility Index (6 month) VXMT 17.75 17.33 0.42 2.42%
VIX of VIX VVIX 84.1 79.07 5.03 6.36%
Long VIX ETP’s
iPath S&P 500 VIX Short Term Futures ETN VXX 19.09 19.02 0.07 0.37%
pShares VIX Short Term Futures ETF VIXY 12.71 12.65 0.06 0.47%
iPath S&P 500 VIX Mid-Tem Futures ETN VXZ 11.27 11.19 0.08 0.71%
Inverse VIX ETP’s
Daily Inverse VIX Short Term ETN XIV 44.85 45.19 (0.34) -0.75%
ProShares Short VIX Short Term Future ETF SVXY 87.84 88.5 (0.66) -0.75%

Data Source: OptionVue7

 

There are not any domestic or international economic reports in the next two weeks which would induce the Fed into delaying the interest rate increase beyond September. Next week brings reports on retail sales and producer prices in the US and Chinese inflation and industrial production, euro zone industrial production.  European Central Bank President Mario Draghi commented last week that markets should get used to volatility. He said big swing in prices should be expected when interest rates are very low.

The next two weeks for be the quietest weeks of the quarter for earnings announcements. announcements include: Bio Reference Labs, Casey’s General Store, H&R Block, Piedmont Natural Gas, Oxford Industries, Pep Boys, Quicksilver, Men’s Wearhouse, and Korn/Ferry International.  It is imperative for an option trader to know the date of earnings announcements in relationship to the expiration date of options being traded.   It is your responsibility to know the dates of announcements. The July and August monthly expirations encompass over 90% of the 2nd quarter earnings announcements for the S&P 500. OptionVue provides information on the effect of individual earnings announcements on the historic stock price and the pre and post earnings implied volatility of the options. These OptionVue tools designed to help the trader successfully trade options around earnings plays. There are five different kinds of earnings play which OptionVue tracks.

I have provided a list of major earning announcements along with Friday’s closing price and implied volatility, time of announcement, and expected earning range. The selected stocks are the result of a scan for stocks announcing earnings in the coming week using the following criteria: Price > 20, 30 Day Implied Volatility > 22, and Average Daily Option Volume > 400 contracts. Once again, it is your responsibility to confirm these earnings dates. The date and time of earnings announcements can and do change.

 

Trading advice to remember:

 

“Chance favors the Prepared Mind.” – Louis Pasteur
“Reality is that which, when you stop believing in it, doesn’t go away.” – Philip K. Dick

 

“People who don’t take risks generally make about two big mistakes a year.

People who do take risks generally make about two big mistakes a year.” – Peter F. Drucker

 

Monday June 8:

 

Economic: Labor Market Conditions – 10:00.

 

International Economic: Germany Industrial Production and Merchandise Trade – 2:00 AM, China PPI and CPI 9:30 PM.

 

Optionable Earnings:

Symbol Company Name June 5 Close IV30 B/A XEPS
ADXS Advaxis, Inc. $28.52 78.58 NA ($0.27)
BRLI Bio-Reference Laboratories Inc $39.60 56.80 B $0.46
HRB H & R Block Inc $31.41 32.38 A $2.65
MTN Vail Resorts, Inc. $104.99 28.12 B $3.80
SHLD Sears Holdings Corp $43.52 60.63 B ($2.58)
UNFI United Natural Foods, Inc. $65.76 35.67 A $0.86

 

 

Tuesday June 9:

 

Economic: Redbook – 8:55, NFIB Small Business Optimism Index – 9:00, JOLTS – 10:00Wholesale Trade – 10:00.

 

International Economic: EMU – GDP – 5:00 AM, Japan PPI and Machine Orders – 7:50 PM.

 

Optionable Earnings:

Symbol Company Name June 5 Close IV30 B/A XEPS
BURL Burlington Stores Inc $54.44 39.39 B $0.40
FGP Ferrellgas Partners, L.P. $22.01 26.37 B $0.62
HDS HD Supply Holdings Inc $33.16 28.93 B $0.29
LULU Lululemon Athletica inc. $61.35 46.12 B $0.34
MFRM Mattress Firm Holding Corp $59.48 49.32 A $0.38
STRP Straight Path Communications Inc $28.69 62.66 A $0.01

 

Wednesday June 10:

 

Economic: MBA Mortgage Applications – 7:00, Quarterly Services Survey – 10:99, EIA Petroleum Status Report – 10:30.

International Economic: Great Britain Industrial Production – 4:30 AM.

Other:

Optionable Earnings:

Symbol Company Name June 5 Close IV30 B/A XEPS
MW Men’s Wearhouse Inc $59.67 38.29 A $0.52

 

 

Thursday June 11:

 

Economic: Weekly Jobless Claims – 8:30, Retail Sales – 8:30, Import and Export Prices – 8:30, Bloomberg Consumer Comfort Index – 9:45, Business Inventories – 10:00, EIA Natural Gas Report – 10:30.

 

International Economic: China Industrial Production and Retail Sales – 1:30 AM.

 

Other:

 

Optionable Earnings:

 

Symbol Company Name June 5 Close IV30 B/A XEPS
RH Restoration Hardware Holdings Inc $91.80 39.22 A $0.20

 

Friday June 12:

Economic: PPI – FD 8:30, University of Michigan/Reuters Consumer Sentiment – 10:00.

International Economic: EMU Industrial Production – 5:00 AM.

Other:

Optionable Earnings: None meeting criteria.

 

Monday June 15:

Economic: Empire State Manufacturing Survey – 8:30, Industrial Production – 9:15, Housing Market Index – 10:00.

International Economic: EMU Merchandise Trade – 5:00 AM.

Optionable Earnings: None meeting criteria.

 

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